Compare common options
A SEP generally uses employer contributions. A SIMPLE IRA generally combines employee contributions with required employer contributions. A one-participant 401(k) can suit a business owner with no eligible common-law employees, and may also cover the owner’s spouse.
Include employee costs
Eligibility rules can require coverage or contributions for employees. Model the total employer cost and ask what happens when you hire. Consider provider fees, annual filings, payroll coordination, and required notices.
Check dates before promising a contribution
Plan establishment, employee elections, and contribution deadlines are not identical. Verify current-year limits and plan terms. Self-employed contribution calculations can differ from a simple percentage of business revenue.
A practical example
An owner comparing plans should estimate contributions for both the owner and eligible staff. A larger personal contribution limit may come with a higher total business commitment.
What to gather
- Employee ages, compensation, and service history
- Owner compensation or self-employment income
- Existing plan documents and contributions
- Cash budget and desired annual savings
Official references
General educational information, not individualized tax, legal, or investment advice. Federal rules are summarized; state rules and your circumstances may differ. Check the rules for your tax year before acting.